Sign of the Times: Blosser Report finds office/retail tenant activity flat at best

Published: Sunday, December 21, 2008

CHRIS VAN WAGENEN

The emptying of one downtown highrise office building, coupled with the closings of two other well-known national retailers may well signal tougher times ahead for the city's commercial real estate sector.

The Omni Office Centre, located in the city's Central Business District off 14th Street at Avenue K, was essentially closed in October, while chinks began showing up on the retail side with the closings of Linens n' Things at South Plains Crossing and Mervyns at South Plains Mall. This year's version of the Blosser Report suggests retail vacancies remain stable while office vacancies, which were flat at 13.4 percent, may erode further.

At best both retail and office leasing is flat, at least for the time being, based on the findings of the 2008 Blosser Report published by Houston-based Gerald A. Teel Co. Inc. on behalf of its Lubbock unit - Blosser Appraisal.

The report, which was authored for the past 20 years by the late Merle Blosser, a well-known and respected local appraiser, was assumed this year by Teel which provided a snapshot of the market at various monthly points.

The report found while the city's retail market is stable, its office sector is in a stable, but declining mode.

"We feel this is a good representation of the market. It's not 100 percent, but it does reflect what's going on," company principal, Gerald Teel told The Avalanche-Journal.

"You have a lot of retailers out there who are struggling. This (general) economy hasn't missed anyone and if it has it will catch them," he said.

Lubbock has already felt the affect to some degree with the surprise announced closings of Mervyn's at the South Plains Mall, Linens n' Things at South Plains Crossings shopping center and regional women's clothier Harold's at Kingsgate South.

In its report, Blosser appraisers researched 139 retail centers containing 4.6 million square feet of net rentable area, compiling data on 85 of those with just under 3.1 million feet over second/third quarter period.

The company found retail vacancies remained flat at 13.4 percent.

Rental rates remained unchanged, averaging $12.78 per square foot.

Blosser found landlords charging an average of $9.36 per square foot for centers built prior to 1980 and $15.32 per square foot for buildings constructed after 2000.

Randy Egenbacher, president of Egenbacher Real Estate, whose portfolio includes the management of 100 retail tenants and 50 office properties, said while his office is still getting inquiries about available property, there's a certain amount of hesitancy among shopping tenants.

"In the past, many of these companies might have taken some extra space, now their just taking the bare bones to operate their businesses. If I had to sum up the market right now, I'd say it's cautious," he said.

Egenbacher said the country's economic crisis is still in an early stage. " I don't think it's really filtered down to us yet. Bill Young, a partner with Westar Commercial Real Estate, said over the years Lubbock has generally been insulated from other recessions. "But this one is having a trickle-down effect."

Young said the city's retail market has been generally overbuilt for some time. "Where we're going to get hit is from national (retailers) and that's already happening," he said.

"I don't think it reflects what's going on locally, but we have overbuilt (retail) and sure enough we're slower. On the positive side, all of this is good for our local retailers," he said.

Womack said it appears to him there is "downward pressure" on retail rental rates.

Nita Kiesling, director of WestMark Real Estate's commercial division, said Lubbock still looks better than the rest of the country.

"I'm just not as pessimistic as some. I don't have a feel for the office market, but it seems more (retail space) has come onto the market," she said.

Kiesling that's resulted in more competition among landlords to fill empty space.

Blosser's examination of the city's office market found a further erosion involving open tenant space.

The company sampled 56 buildings containing 1,140,604 square feet and found vacancies had increased from 10.1 percent in 2007 to 14.6 percent in 2008.

Blosser quoted average rental rates of $15.53 per-square-foot and median rates - that is half of the buildings quoted above or below - at $13.25 per-square-foot.

Appraisers examined a total of 56 office buildings north and south of Loop 289 ranging in size from 10,000 to more than 30,000 square feet.

Blosser experts looked at 29 buildings north of the loop totaling more than 578,000 square feet.

Occupancy rates there stood at 82.26 percent, while average quoted rental rates were pegged at $15.96 per square foot

South of the loop, the company looked at 27 buildings and more than 561,000 square feet of space.

Blosser found occupancy rates of 88.59 percent and average per-square-foot rental quotes of $15.09.

"The office market is in a stable to declining mode, but there's also no supply coming in," said Teel.

Blosser cited Texas Tech as a major stabilizing force in the economy.

"I don't see the 1980s coming at us, but we will continue to see slight declines," Teel said," alluding briefly to the state's infamous real estate bust.

This year's Blosser Report excluded the city's seven high rise buildings in the challenged downtown Central Business District, including the 11-story Omni Office Centre, 1206 14th St., which essentially closed in early October after falling behind on its utility payments.

Mike McDougal, president of McDougal Properties, said the CBD has its own set of problems.

McDougal Cos., which owns Court Place and holds an ownership stake in the 15-story Wells Fargo Center, has hardly seen a flurry of leasing activity.

"We've not seen a lot of movement at either building. We lost a major tenant at Court Place that we were never able to replace and we've leased a 1,000-square-feet here and 1,500-square-feet there, but nothing that would make the meter move," McDougal said.

McDougal said the company's selection as the CBD's master planner by the city of Lubbock - all aimed at revitalizing the downtown area - could add energy to the district once the multi-block project gets underway.

Overall, commercial brokers see 2009 as a challenging year that will be defined by the larger national economy.

Teel said Lubbock, like other Texas cities probably needed a breather to some degree.

"If Lubbock can hold its own over the next 12-to-18 months, it should be in good shape," Teel said.